The following items are generally considered nonexempt assets and can be used to repay your creditors:
A house or other residential property that’s not your primary homeA newer-model vehicle in which you have equityExpensive musical instruments that aren’t needed for your professionA valuable stamp or coin collectionInvestments that aren’t held in retirement accountsValuable artworkExpensive clothingJewelry
Exempt assets that typically cannot be sold to pay creditors include:
A car in which you have only minimal equityFurniture and everyday clothingTools required for your professionRetirement accounts
Exempt assets generally consist of things you need to live or work.
How Do Nonexempt Assets in a Bankruptcy Case Work?
State and federal laws define nonexempt and exempt assets. The laws can vary greatly, so much so that some states allow you to choose whether to use the state or the federal exemption system in your bankruptcy case. You might choose the federal exemption system, for example, because it allows you to keep certain property that your state’s exemption system would not. Nineteen states—Alaska, Arkansas, Connecticut, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin—and the District of Columbia enable you to choose between the two systems. Under federal law, you can protect as exempt assets the following amounts for these specific items:
$25,150 of equity in your principal place of residence$4,000 for your motor vehicle$1,700 for jewelry$625 each for individual household items, including furniture, appliances, and clothing, with a total amount of $13,400$2,525 for business-essential items, including tools and bookshealth aids (no set limit)$13,400 of loan value, accrued dividends, or interest in or from a life insurance policy
Those amounts apply to cases filed on or after April 1, 2019. If you have nonexempt assets in your bankruptcy case, your creditors will file a claim against the assets to get a distribution from the bankruptcy estate. The trustee will take the assets, sell them, and distribute the proceeds to the creditors who have filed a claim. The trustee may decide not to use some of your nonexempt assets if they aren’t worth much or would be too difficult to sell. You’re expected to be honest in listing your assets. Trustees don’t often visit homes, but they can get a court order to do so if they have any reason to believe you are hiding assets.
Alternatives to Filing for Chapter 7 Bankruptcy
You might consider selling your assets on your own and using the money to pay or settle your debts. It’s more work for you, but it allows you to avoid having a bankruptcy on your credit report. However, note that if you try to sell assets so you won’t have to give them up in bankruptcy and you then later file for bankruptcy, your case may be affected. The court will analyze your intent in selling the assets and make a decision about whether you were trying to hide assets or defraud the court. The trustee may recover the sold assets, seize some of your exempt property, or even deny a discharge of your debts. Chapter 13 bankruptcy is for those debtors who have steady income and are capable of making payments to their creditors over a period of three to five years using all of their disposable income. If you file for this type of bankruptcy, you develop a payment plan with the help of a credit counselor. You must repay your creditors at least the value of your nonexempt assets, even though those assets won’t be liquidated.
